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Minnesota Supreme Court upholds tobacco fee

Writing for the majority, Chief Justice Russell Anderson said the landmark settlement in 1998 did not prevent the Legislature from imposing future taxes or fees on tobacco for smoking-related health care costs. He said it makes no difference whether one calls the 75-cents a pack increase, a fee or a tax because both deal with an exercise of the Legislature's power. The 1998 settlement could not waive a legislative power unless it was absolutely clear that's what the state was doing. In this case, it was not free of doubt.

Chief Deputy Attorney General Kris Eiden said her office is pleased with the decision. She said there was never any intent that the state would have relinquished its power to generate revenue.

"The language of the agreement didn't say that and therefore the court said, 'no, that wasn't the intent, that wasn't what the agreements says and therefore, the Legislature did have the authority to impose this fee," she said.

The Legislature passed the 75-cent fee on each pack of cigarettes during last year's contentious legislative session. The governor called the increase a health impact fee and said its proceeds would offset smoking-related health care costs. The tobacco companies took the state to court arguing that the state was double-dipping into the industry's coffers. They said the health impact fee, regardless of the label, amounted to a claim barred by the 1998 agreement.

Since then the state Finance Department says the tobacco companies have paid more than $2 billion from the settlement.

CONSIDERING AN APPEAL

Several major tobacco companies took part in the 1998 settlement. One was R.J. Reynolds. Reynolds spokesman David Howard said the company is considering whether it had any grounds to appeal. Nevertheless, he disagrees with the ruling that the health impact fee is valid.

"That is the justices' opinion on that. We are reviewing that and we'll see and as I think we presented in our case, that it was in violation of the settlement agreement and that is the reason we brought this case and disappointed that the justices felt differently," he said.

Kris EidenMPR Photo/Laura McCallum

Chief Justice Anderson cited another reason why the health impact fee did not violate the agreement: while the tobacco companies challenged the fee, they weren't the ones harmed by it. The state ultimately collected that money from consumers, not the tobacco companies.

While Justice Page agreed with the court's ultimate decision, he disagreed with the majority on this point. Page said he was troubled by "a hidden tax" of the health impact fee. Page said smokers are once again paying for the state's smoking-related health care -- the same costs one could reasonably have hoped were being paid for through the 1998 settlement. He said the industry's settlement payments along with the fee, exceed the state's smoking-related health care costs.

NO BARGAINING ALLOWED

University of Minnesota law professor Fred Morrison says the ruling follows a long line of cases.

"The state cannot bargain away its sovereign right that's sometimes expressed as one legislature cannot bind the next, or perhaps in the case the attorney general can't bind the Legislature at least a future legislature, not to enact ordinary laws," according to Morrison.
Six justices heard arguments in the case in April; a seventh, Justice Sam Hanson, recused himself for unknown reasons.

RELIEF AT THE CAPITOL

The court's ruling ends some financial uncertainty in the last days of the Legislative session. It means the Legislature can spend the state's $88 million projected surplus, along with more than $300 million in a tax relief account.

Gov. Pawlenty has taken his lumps from both the right and the left over the health impact fee. Conservatives blasted it, and Democrats accused him of playing semantics by calling it a fee instead of a tax. Pawlenty says he never doubted the legality of the fee, and called the ruling a victory.

Gov. Tim PawlentyMPR Photo/Tom Scheck

"It also now returns us to a certain and stable and improving financial outlook for the state of Minnesota," Pawlenty said in an afternoon news conference.

Without the fee, the state's modest surplus would have evaporated, and the state might have had to dip into a $317 million tax relief account. The ruling now sets the stage for a spending food fight in the final days of the session, which must adjourn on Monday.

A budget conference committee has been meeting, but hasn't made any final decisions. There's general consensus that the Legislature needs to pay for additional costs to house sex offenders, and spend money on water cleanup and other programs.

EARLY END TO SESSION UNLIKELY

Republican House Speaker Steve Sviggum of Kenyon says talk of an early adjournment is just that.

"The ruling today, providing more resources to be available, provides more options, more discussions, more disagreements, so I think it does mean that the session will probably be extended through the full week," Sviggum said.

House Republicans want to use the state's tax relief account for property tax rebate checks, a proposal panned by DFL leaders as a gimmick. They're calling for long-term property tax relief in the form of additional aid to local governments. Assistant House Minority Leader Margaret Anderson Kelliher, a Minneapolis DFLer, says the ruling opens the door to other spending.

"There's some education priorities that Democrats have been fighting for, some class-size reduction, early childhood education. I think those sorts of things, permanent property tax relief will, I think, be a big battle in the next 48 hours here," she said.

Although a budget fight is likely, lawmakers say the alternative of no new spending in an election year would have been worse.

The legislator who first proposed the idea of a cigarette fee at the wholesale level, Republican Rep. Ray Cox of Northfield, says he's thrilled that the court upheld the Legislature's authority to impose the cigarette fee.

"This should be the end of it," according to Cox. "We have the right to do this, and I felt all along that we definitely, the Legislature, had the right to do this, and we've been reinforced in that level."

Cox says his motivation for proposing the fee was to reduce health care costs and lower smoking rates. He thinks the 75-cent-a-pack fee is doing that; he says two of his employees have quit smoking because of the fee.

NOT EVERYONE IS HAPPY

Critics of the fee say while it's no longer in legal limbo, they still think it's a bad idea.

"I was totally opposed to taxing the poorest people in the state with the most regressive tax," said DFL Rep. Tom Rukavina of Virginia.
"A lot of people complained, not just smokers, a lot of people thought it was unfair, and almost every person to a 't' on the Iron Range knows that this is a tax and not a fee."

But Rukavina and other lawmakers aren't complaining that the state gets to keep the money it's collected so far, and will continue to collect the 75-cent-a-pack fee.